PhotoWorks reports sharp losses

By DAN RICHMAN, SEATTLE POST-INTELLIGENCER REPORTER

Published 10:00 pm, Friday, January 13, 2006

PhotoWorks Inc. of Seattle, a film developer struggling to regain profitability after being blindsided by the digital revolution, reported sharply increased losses and a large revenue decline on Friday for its fiscal 2005 ended Sept. 30.

Revenue fell 32 percent, to $13.7 million. The net loss was $7.4 million, or a loss of 96 cents per share. That compared with a net loss of $1.67 million, or 50 cents per share, in fiscal 2004.

Chief Executive Philippe Sanchez said in a statement that he believes the company is "well positioned to deliver on our growth objectives for fiscal year 2006." He pointed to revenue for digital processing, which grew by 24 percent to $3.8 million in fiscal 2005.

PhotoWorks hasn't posted a profit in at least four years, and its share price has plunged since its peak in 1997.

Called Seattle FilmWorks until 2000, the company was traumatized first by the sudden decline of film, and then by botched management responses to that change.

The entire leadership team has been replaced, the company's debt has been eliminated, staff was cut to 55 from 248 over two years, and it has received a $4 million cash infusion.

"We're moving to the phase of growth that has profitability in sight and cash in the bank," Sanchez said in a recent interview.

Three online photofinishers dominate the multibillion dollar industry -- Kodak Gallery, Snapfish and Shutterfly -- and PhotoWorks is among scores of smaller companies trying to grab and hold onto part of that market.

PhotoWorks hopes to distinguish itself from competitors by specializing in high-end, custom-made photo albums, created entirely online and selling for between $12 and $120.